CARLSBAD, Calif., Nov 06, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Dot Hill Systems Corp. (Nasdaq: HILL) today announced financial results for the third quarter ended September 30, 2008. Net revenue was $76.6 million (a record for the company's quarterly net revenue), compared to $45.7 million for the third quarter of 2007, and $71.0 million for the second quarter of 2008. Included in the third quarter 2008 revenue figures is an accrued payment of $1.7 million from one of the company's large OEM customers in consideration of Dot Hill price reductions.
Net revenue for the third quarter of 2008 was within the guidance range of $73 to $78 million that the company provided on August 8, 2008.
For the third quarter of 2008, net loss was $3.7 million, or $0.08 per fully diluted share and included a one-time legal settlement of $0.5 million of which approximately $0.3 million was included in cost of goods and $0.2 million was included in operating expenses. Also included in the net loss was a $1.7 million accrued payment from one of the company's large OEM customers in consideration for price reductions. The company had anticipated receiving this payment when it established guidance on August 8, 2008. This compares to a net loss of $4.1 million for the third quarter of 2007, or $0.09 per fully diluted share, and a second quarter 2008 net loss of $7.4 million, or $0.16 per fully diluted share.
On a non-GAAP basis, after excluding share-based compensation expense, severance costs and foreign currency adjustments, net loss for the third quarter of 2008 was $3.1 million, or $0.07 per share on a fully diluted basis and was within the $0.06 to $0.10 range that the company set on August 8, 2008.
Gross margin percentage for the third quarter of 2008 was 11.7 percent as compared to third quarter 2007 gross margin of 14.3 percent and second quarter 2008 gross margin of 10.2 percent. The gross margin percentage for third quarter of 2008 includes a $0.3 million legal settlement benefit and $1.7 million accrued payment from one of the company's large OEM customers. The company attributes the decrease in gross margin percentage on a year-over-year basis primarily to a change in product and customer sales mix, as the company's higher margin net revenue from Sun Microsystems has declined over the past year, while shipments of the company's lower margin products to NetApp, Hewlett-Packard and other customers have increased. On a sequential basis, gross margin percentage increased despite the decline in net revenue from Sun Microsystems, primarily due to material cost reductions that the company realized during the quarter.
"We are pleased that we were able to meet our projections for the third quarter of 2008," said Dana Kammersgard, president and chief executive officer, Dot Hill. "Despite challenging market conditions, we were able to achieve record net revenue which was an improvement of 8 percent sequentially and 68 percent year-over-year. Our focus has shifted from one of revenue diversification and top line growth to continued margin improvement and the attainment of sustainable profitability. We remain intensely focused in these areas and remain confident that we will return to profitability in the near term."
Dot Hill exited the third quarter of 2008 with cash and cash equivalents of $56.5 million and a $0.9 million note payable associated with the purchase of intellectual property assets from Ciprico, Inc. This compares to the second quarter 2008 balance of cash and cash equivalents of $62.1 million, with no outstanding debt. The sequential decrease in cash and cash equivalents was due primarily to operating losses, increased working capital requirements associated with the ramp in the company's business and a one-time cash payment of $2.25 million associated with the purchase of intellectual property assets from Ciprico, Inc.
"I am pleased with the fact that we managed to lower overall inventory levels by almost $1 million quarter over quarter, despite a significant revenue ramp in our business," said Hanif Jamal, senior vice president and chief financial officer at Dot Hill. "This was due in part to $3.3 million of higher than expected end of quarter inventory pulls from two of our larger OEM customers."
The company is targeting fourth quarter 2008 net revenue in the range of $70 to $76 million and a net loss per fully diluted share in the range of $0.05 to $0.10 on a non-GAAP basis, which excludes share-based compensation expense, severance and restructuring charges and currency gains and losses. The company believes that the higher than expected end of quarter inventory pulls from two of its larger OEM customers could impact revenues for the fourth quarter of 2008 and has been contemplated in the established guidance.
Dot Hill's third quarter 2008 financial results conference call is scheduled to take place on November 6, 2008 at 4:30 p.m. ET. Please join us for a live audio webcast at http://www.dothill.com in the Investor Relations section. If you prefer to join via telephone, please dial 888-204-4317 (U.S.) or 913-312-1269 (International) at least five minutes prior to the start of the call. A replay of the webcast will be available on the Dot Hill web site following the conference call. For a telephone replay, dial 888-203-1112 (U.S.) or 719-457-0820 (International) and enter passcode 4807034.
About Non-GAAP Financial Measures
This press release contains financial results that exclude the effects of stock-based compensation expense, severance costs, one-time legal settlement benefits and foreign currency adjustments and are not in accordance with U.S. generally accepted accounting principles (GAAP). The company believes that these non-GAAP financial measures provide meaningful supplemental information to both management and investors that are indicative of the company's core operating results and facilitates comparison of operating results across reporting periods. The company used these non-GAAP measures when evaluating its financial results as well as for internal resource management, planning and forecasting purposes. These non-GAAP measures should not be viewed in isolation from or as a substitute for the company's expected financial results in accordance with GAAP.
About Dot Hill
Delivering innovative technology and global support, Dot Hill empowers the OEM community to bring unique storage solutions to market, quickly, easily and cost-effectively. Offering high performance and industry-leading uptime, Dot Hill's RAID technology is the foundation for best-in-class storage solutions offering enterprise-class security, availability and data protection. The company's products are in use today by the world's leading service and equipment providers, common carriers, advanced technology and telecommunications companies as well as government agencies. Dot Hill solutions are certified to meet rigorous industry standards and military specifications, as well as RoHS and WEEE international environmental standards. Headquartered in Carlsbad, Calif., Dot Hill has offices and/or representatives in China, Germany, Japan, United Kingdom and the United States. For more information, visit us at http://www.dothill.com.
Statements contained in this press release regarding matters that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such statements include statements regarding: Dot Hill's projected financial results for the fourth quarter of 2008; Dot Hill's ability to achieve profitability; continued diversification of Dot Hill's revenue stream; and continued margin improvement. The risks that contribute to the uncertain nature of the forward-looking statements include, among other things: the risk that actual financial results for the fourth quarter of 2008 may be different from the financial guidance provided in this press release; the fact that no Dot Hill customer agreements provide for mandatory minimum purchase requirements; the risk that one or more of Dot Hill's OEM or other customers may cancel or reduce orders, not order as forecasted or terminate their agreements with Dot Hill; the risk that Dot Hill's new products may not prove to be popular; the risk that one or more of Dot Hill's suppliers or subcontractors may fail to perform or may terminate their agreements with Dot Hill; unforeseen technological, intellectual property, personnel or engineering issues; and the additional risks set forth in the form 10-K and subsequent reports most recently filed with the Securities and Exchange Commission by Dot Hill. All forward-looking statements contained in this press release speak only as of the date on which they were made. Dot Hill undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.
DOT HILL SYSTEMS CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In Thousands, Except Per Share Amounts) Three Months Ended Nine Months Ended September 30, September 30, 2007 2008 2007 2008 NET REVENUE $45,691 $76,641 $155,331 $200,494 COST OF GOODS SOLD 39,166 67,700 135,208 180,165 GROSS PROFIT 6,525 8,941 20,123 20,329 OPERATING EXPENSES: Sales and marketing 3,677 2,990 11,456 10,909 Research and development 5,746 6,940 16,617 21,489 General and administrative 2,424 3,309 9,416 10,291 Legal settlement - (200) - (4,036) Total operating expenses 11,847 13,039 37,489 38,653 OPERATING LOSS (5,322) (4,098) (17,366) (18,324) OTHER INCOME: Interest income, net 1,255 309 3,794 1,374 Other (expense) income, net - (19) - 61 TOTAL OTHER INCOME, NET 1,255 290 3,794 1,435 LOSS BEFORE INCOME TAXES (4,067) (3,808) (13,572) (16,889) INCOME TAX EXPENSE (BENEFIT) 56 (117) 255 281 NET LOSS $(4,123) $(3,691) $(13,827) $(17,170) NET LOSS PER SHARE: Basic and diluted $(0.09) $(0.08) $(0.30) $(0.37) WEIGHTED AVERAGE SHARES USED TO CALCULATE NET LOSS PER SHARE: Basic and diluted 45,717 46,223 45,451 46,078 COMPREHENSIVE LOSS: Net loss $(4,123) $(3,691) $(13,827) $(17,170) Foreign currency translation adjustments (1,251) (27) (1,692) (128) Net unrealized gain on short-term investments (2) - (2) - Comprehensive loss $(5,376) $(3,718) $(15,521) $(17,298) DOT HILL SYSTEMS CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Per Share Amounts) December 31, September 30, 2007 2008 ASSETS Current Assets: Cash and cash equivalents $82,358 $56,524 Accounts receivable, net of allowance of $302 and $312 32,445 48,213 Inventories 9,013 12,613 Prepaid expenses and other 3,968 3,938 Total current assets 127,784 121,288 Property and equipment, net 9,599 7,352 Intangible assets, net 2,280 5,607 Other assets 264 338 Total assets $139,927 $134,585 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $28,472 $34,944 Accrued compensation 3,115 3,564 Accrued expenses 6,227 4,055 Deferred revenue 1,409 1,168 Short term note payable - 248 Income taxes payable 143 348 Total current liabilities 39,366 44,327 Long term note payable - 670 Other long-term liabilities 4,132 4,755 Total liabilities 43,498 49,752 Commitments and Contingencies Stockholders' Equity: Preferred stock, $.001 par value, 10,000 shares authorized, no shares issued and outstanding at December 31, 2007 and September 30, 2008, respectively - - Common stock, $.001 par value, 100,000 shares authorized, 45,781 and 46,308 shares issued and outstanding at December 31, 2007 and September 30, 2008, respectively 46 46 Additional paid-in capital 294,193 299,895 Accumulated other comprehensive loss (3,100) (3,228) Accumulated deficit (194,710) (211,880) Total stockholders' equity 96,429 84,833 Total liabilities and stockholders' equity $139,927 $134,585 DOT HILL SYSTEMS CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Three Months Ended Nine Months Ended September 30, September 30, 2007 2008 2007 2008 Cash Flows From Operating Activities: Net loss $(4,123) $(3,691) $(13,827) $(17,170) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,609 1,394 5,031 4,385 Loss on disposal of property and equipment 47 - 213 57 Reduction in bad debt reserve (4) (33) (45) (153) Issuance of warrant to customer - - - 2,282 Share-based compensation expense 670 661 1,647 2,224 Changes in operating assets and liabilities: Accounts receivable 8,718 (1,715) 10,887 (15,566) Inventories (1,820) 969 (2,646) (3,578) Prepaid expenses and other assets (393) 489 332 (42) Accounts payable (5,252) (660) (9,076) 6,710 Accrued compensation and expenses 361 (594) (2,644) (2,042) Deferred revenue 775 (23) 2,569 (251) Income taxes payable (4) (139) 11 205 Other long-term liabilities 2,402 367 551 (147) Net cash provided by (used in) operating activities 2,986 (2,975) (6,997) (23,086) Cash Flows From Investing Activities: Purchases of property and equipment (1,862) (638) (3,776) (1,503) Purchase of intangible assets - (2,482) - (2,482) Purchase of short-term investments (5,425) - (5,425) - Net cash used in investing activities (7,287) (3,120) (9,201) (3,985) Cash Flows From Financing Activities: Proceeds from sale of stock to employees 459 447 967 912 Proceeds from exercise of stock options and warrants 29 86 163 284 Net cash provided by financing activities 488 533 1,130 1,196 Effect of Exchange Rate Changes on Cash 154 4 143 41 Net Decrease in Cash and Cash Equivalents (3,659) (5,558) (14,925) (25,834) Cash and Cash Equivalents, beginning of period 88,397 62,082 99,663 82,358 Cash and Cash Equivalents, end of period $84,738 $56,524 $84,738 $56,524 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $- $- $- $- Cash paid for income taxes $45 $22 $217 $78 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Construction in progress costs incurred but not paid $414 $261 $768 $108 Promissory note for intangible assets purchase $- $918 $- $918 Contingent payment for intangible assets purchase $- $1,070 $- $1,070 DOT HILL SYSTEMS CORP. AND SUBSIDIARIES UNAUDITED RECONCILIATION TABLE OF NON-GAAP MEASURES (In Thousands, Except Per Share Amounts) Three Months Ended Nine Months Ended September 30, September 30, 2007 2008 2007 2008 Net loss $(4,123) $(3,691) $(13,827) $(17,170) Effect of currency gain (1,318) (141) (1,575) (185) Effect of share-based compensation 670 660 1,648 2,223 Effect of issuance of warrant to customer - - - 2,282 Effect of legal settlement - - - (3,836) Effect of severance costs 49 24 107 533 Net loss as adjusted $(4,722) $(3,148) $(13,647) $(16,153) Net loss per share: Basic and diluted $(0.10) $(0.07) $(0.30) $(0.35) Weighted average shares used to calculate net loss per share: Basic and diluted 45,717 46,223 45,451 46,078 Net revenue $45,691 $76,641 $155,331 $200,494 Effect of issuance of warrant to customer - - - 2,282 Net revenue as adjusted $45,691 $76,641 $155,331 $202,776 Gross profit $6,525 $8,941 $20,123 $20,329 Effect of issuance of warrant to customer - - - 2,282 Effect of share-based compensation 83 100 242 296 Effect of severance costs 19 22 19 183 Gross profit as adjusted $6,627 $9,063 $20,384 $23,090
SOURCE Dot Hill Systems Corp.
Copyright (C) 2008 PR Newswire. All rights reserved
News Provided by COMTEX